“If heightened political uncertainty and strife among the various branches of government disrupt the administration’s economic and fiscal agenda, macroeconomic stability and the government’s access to external finance could be impaired, weighing on Pakistan’s credit profile,” the agency said.

Investigations into the financial affairs of Nawaz Sharif and his family followed the 2015 publication of Panama Papers, which disclosed his children’s vast and previously unreported wealth. The Supreme Court’s ruling in the case included an instruction for the National Accountability Bureau to initiate further investigations in the case.

“High domestic political risk [is] embedded in Pakistan’s credit profile,” said Moody’s and explained that the probability of political events that could affect sovereign credit profile was high and that such events would have a large impact on policymaking and thereby on the economy and the government’s access to finance.

Implementation of CPEC likely to be slow, says rating agency

Pakistan’s politics has long been ‘characterised’ by military coups and strife between the executive, judiciary and military. The persistence of heightened political risk has weakened government effectiveness and its control over corruption.

Following the country’s first democratic transfer of power in 2013, when his party secured an absolute electoral majority, it appeared that Mr Sharif might become the first civilian prime minister in the country’s history to complete a full five-year term.

“His ouster now could trigger another period of political instability, undermining Pakistan’s ability to address pressing domestic economic challenges, bolster investor confidence and attract external financial support from official creditors and donors,” Moody’s said.

Talking about uncertainty regarding policy continuity beyond Mr Sharif’s immediate succession, the rating agency said some political continuity would be maintained in the near term as Mr Sharif had announced that his brother Shahbaz would replace him as prime minister and standard bearer of the Pakistan Muslim League-Nawaz.

Shahbaz Sharif has been serving as the chief minister of Punjab and has overseen several high-profile development projects. Prior to becoming prime minister he must step down as chief minister and get elected to the National Assembly on the seat vacated by his brother. In the meantime, Shahid Khaqan Abbasi will serve as the prime minister.

Given the PML-N’s strong support in Punjab and Shahbaz’s popularity as chief minister, his victory in the by-election appears highly likely.

However, with the next general election due by August next year, the change in PML-N leadership and the ongoing investigations into the financial affairs of the Sharif family could disrupt the policymaking process and economic reforms.

“Credit implications depend on impact on government reforms [and] access to external finance. We expect domestic political risk to continue to constrain Pakistan’s credit profile in the near and medium term, due to both recent events and the country’s longstanding history of domestic security challenges, disruptive politics and military coups.

“The extent to which these events detract from economic and fiscal policymaking, and reduce government effectiveness in general, will ultimately determine their impact on Pakistan’s credit profile. Under Nawaz Sharif’s leadership, in September 2016, Pakistan completed a three-year International Monetary Fund [IMF] Extended Fund Facility programme that helped to stabilise the economy,” said the US-based agency.

“Through its reforms, the government reduced the fiscal deficit, introduced more rigorous inflation management, and rebuilt foreign exchange reserves. More recently, fiscal consolidation has slowed, reserves have declined anew, and external pressures have started to build. “Continued government commitment to policies that preserve macroeconomic stability gains and advance fiscal consolidation would limit future widening of the twin deficits, supporting Pakistan’s creditworthiness. Conversely, slippage from such commitments would exert negative pressure on the credit profile.”

In addition to the IMF programme, Nawaz Sharif oversaw a major expansion of Pakistan’s economic relationship with China through the launch of the China-Pakistan Economic Corridor (CPEC) project in 2015.

The CPEC is a large package of Chinese investment projects with the potential to transform Pakistan’s economy by relieving supply-side constraints to growth through investment in power generation and transport infrastructure. If implemented as planned, CPEC would lift Pakistan’s potential GDP growth significantly and catalyse higher private-sector investments and exports.

“However, security-related issues and Pakistan’s weak track record of public project implementation suggest that the pace of execution will be relatively slow. Moving forward, continued support for the CPEC project across all branches of government will be critical to its success and full implementation,” said Moody’s.

On DawnNews

Comments (36) Closed

Arif

Aug 02, 2017 08:19am

Thank you Imran Khan!

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Ziaurrehman

Aug 02, 2017 08:39am

Political instability might cause delay in cpec implementations but as they say it's is better to make sacrifice for greater good. Nawaz's disqualification has set a precedence that would not let any future politician to indulge in corruption of same manner at least..

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Aussie

Aug 02, 2017 08:41am

Good job Imran Khan. Clean bold these thugs one at a time.

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Israr khan ismailzai

Aug 02, 2017 08:45am

LOL, the funniest thing I ve seen the whole day. This firm clearly has no clue how bad the govt of N league is. $35 billion in loans, an ever increasing load shedding, declining exports increasing imports, nothing but inaugurations of fake project etc. Don't really know how would that slow down "taraqi" in Pakistan.

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Shaukat Ali Khan

Aug 02, 2017 08:49am

Moody's fears are right. But that is what the enemies of Pakistan want.

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MUsmanK

Aug 02, 2017 08:51am

CPEC will mostly benefit China... We need to get our country and our government in order foremost... to hell with CPEC and Moody's opinion!

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Saeed Ahmed

Aug 02, 2017 09:01am

Very naive analysis

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alba

Aug 02, 2017 09:02am

Pakistan has made a commitment. There is no going back now. Pakistanis need whatever reforms will bring. The Chinese have made their commitment too. They will have to work with whoever is the prime minister.

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Dr Khan

Aug 02, 2017 09:04am

MOODY should give comments related to economy of the country and refrain from interfering in the internal politics of Pakistan. Where was Moody when tax payers money was being looted in Pakistan ?

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umair26

Aug 02, 2017 09:06am

Do they express fears about the forged figures presented to them by Ishaq Dollar?

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JA-Australia

Aug 02, 2017 09:13am

If Pakistan can reduce corruption to manageable levels, and implement transpartency and efficiency in national projects, then Moody's rating will be better than ever before.

Any reform will have short term costs.

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Pakman

Aug 02, 2017 09:23am

It's only gonnna get better.

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Saeeds

Aug 02, 2017 09:36am

@Aussie Please comments after reading the whole article. This article is about the dire consequences created after NS, growth progress will go down along with credit rating.

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Shershah

Aug 02, 2017 09:53am

Would have asked them the same if their supreme court ousted corrupt politician.

In the preview area, seeing the picture without the subtitle, I thought these are the protesters/victims of 'Model Town massacre' at the hand of PML-N Police.
Nobody listens to the cries of the oppressed in this country, only the influentials?

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common sense

Aug 02, 2017 10:31am

Moodys or modis can never be friend of Pakistan

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bimal william

Aug 02, 2017 10:36am

@MUsmanK No country in this world has progressed without the hard work by its own people. When Germany and Japan were totally destroyed during second world war, the German and the Japanese built their countries without outside help. So if Pakistanis think that CPEC will change the life of their citizens they are making a mistake. You just need an honest and intelligent leader and investment in education and research. After 10 years the people of Pakistan will see a big change.

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Agha

Aug 02, 2017 10:42am

All Weather Iron Brother will bail out the economy through " one way street " called CPEC !!

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WARRIs

Aug 02, 2017 10:51am

Moody must have the political maturity to realise that agreements are made between states and not between individual politicians!!

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Sameer

Aug 02, 2017 10:51am

Never believe anything coming from new york.

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Saira

Aug 02, 2017 11:07am

Do we need to say more about the former PM? Thank you IK. The nation stands with you.

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Shahid

Aug 02, 2017 11:13am

In case someone missed the central thrust of the report, it is 3 pronged: foreign investment, donors and credit worthiness. All 3 are in foreign interests. Go out and ask ordinary people in the street b/c they know the ground reality better than all these experts. It is common sense that uncertainty affects financial landscape adversely. It is sitting government's job not to create situations that lead to internal chaos by staying transparent, specially about financial matters affecting its citizens.

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excalibur

Aug 02, 2017 11:31am

Moody or Modi both are irrelevant for Pakistan

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Philosopher (from Japan)

Aug 02, 2017 11:39am

Friendship of modi nawaz is quite visible to the world what else I should say you know better.

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Mike

Aug 02, 2017 12:17pm

There is an enemy within. Don't for one outside.

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The Truth

Aug 02, 2017 12:36pm

After Modi feared the day when the criminal silence of NS over human rights violation in IOK will be replaced by voice of Justice.
Thank you Imran Khan

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Kam

Aug 02, 2017 01:02pm

@bimal william look up marshall plan

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The end is near

Aug 02, 2017 01:09pm

Thanks Dear IK. Pakistani nation is proud of you.

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Hudaf

Aug 02, 2017 01:54pm

The new government should ensure that implementation of the Gwadar port and other CPEC projects goes ahead full steam as these are very crucial for China to extend it's military swap into the Persian Gulf and ensure that it can easily acquire the Gulf oilfields in case of any stress in their relationship with the US.

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Wahab

Aug 02, 2017 03:34pm

@The Truth You guys really have a high regard of your clout in global circles... lol! Do your worst we will see who comes out on top.

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Kamran

Aug 02, 2017 05:43pm

Nothing is going to happen....Corruption is number one problem and we have to get rid of it...These types of agencies haven't supported any clean governments so don't worry about them.